Fortis Healthcare Ltd said its board has scrapped an amalgamation scheme proposed 19 months ago that entailed spinning off its diagnostics business SRL Ltd into a separate listed company without floating an initial public offering.

The amalgamation between already listed firm Fortis Malar Hospitals Ltd and SRL could not happen because of reasons beyond the company’s control, Fortis said in a stock market disclosure.

The company had first received approval for the amalgamation in August 2016. The process was initially expected to be completed in six to eight months' time but got extended.

During this period of 19 months the healthcare sector has witnessed strong headwinds and performance of diagnostics business has not been optimum, the company said.

“Given (these)… the demerger and a subsequent listing may result in value unlocking that may not be optimum for Fortis shareholders at this point of time,” it added.

The binding bids should address certain objectives which includes plan for providing an exit to private equity investors of SRL and minimum investment of Rs 1,500 crore by way of preferential allotment, Fortis said previously.

While the binding bids are yet to filed, media reports have alleged fraudulent transactions at Fortis in the past that could throw a spanner on the hospital chain’s valuation. According to a report by The Economic Times earlier this week, law firm Luthra and Luthra found illegal fund flow of Rs 430 crore made by a company unit into three entities linked to Fortis founders.

The report cited Radiant Life expressing concern over the curtailed access for due diligence given by Fortis.

These could all play out negatively in the valuations the bidders finally quote after all of them had outbid each other in the first round of bidding that was eventually declared invalid.

Fortis had been looking for buyers for more than a year but legal cases against its founders, brothers Malvinder Singh and Shivinder Singh, deterred potential investors. However, suitors began eyeing Fortis when the siblings lost control of the company in early March after lenders seized the shares they had pledged to take on loans.

In late March, Fortis agreed to sell its hospital business to TPG-Manipal. But the decision led to an outcry from some minority shareholders on concerns the TPG-Manipal offer undervalued Fortis. This opened the door for other suitors to bid for the company.

Subsequently, Malaysia’s IHH Healthcare, the consortium of Munjal-Burman, China’s Fosun and KKR-backed Radiant Life Care Pvt. Ltd offered to invest in Fortis. As the bidding war intensified, TPG-Manipal, IHH Healthcare, Munjal-Burman and Radiant Life revised their offers by one or more times.

Finally, on 10 May, the Munjal-Burman consortium was selected as the winner of the takeover battle. However, the decision was likely made against the opinion of some of the board advisers and had not gone down well with a section of the company’s shareholders.

Within days of the winning announcement, TPG-Manipal raised the offer to buy Fortis and later extended its validity period. IHH Healthcare also extended the validity period of its offer.

At the same time, there has been a dramatic upheaval at the Fortis board. Shareholders voted to remove Brian Tempest from the board, who was one of four directors appointed to the board by the Fortis founders. The other three had quit even before the shareholders’ meeting took place to decide their fates.

Investors Jupiter India Fund and East Bridge Capital had demanded that the four directors quit the board because, by selecting the Hero-Burman bid, they had failed to work in the interest of the company’s shareholders.

The board now has only four directors. While voting out Tempest, Fortis shareholders also approved the appointment of three new directors — Suvalaxmi Chakraborty, Ravi Rajagopal and Indrajit Banerjee – whose names were recommended by the activist investors. The fourth remaining board member is Rohit Bhasin.